GoldCore / April 12, 2012
IMF: Gold Is Scarce “Safe Asset” And “Rising Demand for Safe Assets”
Further confirmation of gold’s continuing but gradual renaissance as a safe haven asset was given by the IMF yesterday who warned that a “growing shortage of safe assets” poses a threat to “global financial stability.”
The IMF identified $74.4 trillion of potentially safe assets today, including gold, investment grade government and corporate debt, and covered bonds.
Sovereign debt crises are reducing the number of governments that investors trust to issue “risk-free” bonds just as new financial regulations are increasing demand for safe securities from banks.
Importantly, the IMF’s latest Global Financial Stability Report’s introduction finds that
“In the future there will be rising demand for safe assets, but fewer of them will be available, increasing the price for safety in global markets.”
“Both the lack of political will to reshape fiscal policies at times of rising concern over debt sustainability and an overly rapid reduction of fiscal deficits limit governments’ capacity to produce assets with low credit risk.”
The IMF has warned regarding illiquidity in “safe haven” markets. Gold remains one of the most liquid markets in the world and the illiquidity in bond markets would see increased safe haven demand for gold.
The IMF is warning regarding deteriorating public finances. As many governments see themselves being downgraded – safe haven bonds may become less safe.
This bodes well for gold in the coming years and should see gold again be seen as a leading if not the ultimate safe haven asset.